There is uncertainty around the world. How are foreign investors looking at emerging markets, especially India?
I believe we should not look at emerging markets as a whole. Rather, it would be more appropriate to segregate different economies from the basket of emerging markets.
Even if you look within Asia, different countries react differently to economic events. For example, some may gain from declining crude oil prices while others stand to lose.
Among Asian economies, India stands out as most attractive. Though global investors are generally still skeptical about Asia, India remains a consensus overweight.
The primary reasons behind India’s popularity among global investors are its growth potential and attractive demographics. For instance, less than 10% of India’s FMCG categories are branded, giving India a lot of growth potential for global investors.
In addition, India’s attractive demographics with a large young working population means that the country will get richer before it gets old, which provides global investors a comfort to invest with a long term perspective.
Do you think investors learn from the past market crisis?
This animal instinct is very much similar across the globe. In developed markets too, investors often chase a rally when there is excessive euphoria and sell in panic when there is excessive pessimism. The current cycle is certainly no different. By focusing on bottom-up company fundamentals, investors are less likely to be swayed by short-term sentiment-driven volatilities, and be better able to capture mispricing opportunities in the market.
How do you create alpha especially in developed markets where beating the market has become increasingly difficult?
It is true that beating the market has become increasingly difficult. Our investment philosophy is relatively straight-forward – If you find good businesses with sustainable competitiveness run by good management and invest with a long term horizon, you will be successful over the long-run. You also need to be patience, persistent, and invest with discipline.
Another important aspect of generating alpha is to invest with conviction. There is often a lot of noise in the market, which may influence one’s conviction level. However, by focusing on company fundamentals, this provides investors with an anchor through near-term ups and downs in the market.
Many market participants seek performance through making short-term bets. We don’t subscribe to this view, and do not take short-term investments. Our portfolio turnover ratio is very low. In fact, our average holding period is 3 to 4 years for our holdings in the portfolio.
What is the role of individual fund management skills versus organizational processes? What is more important according to you?
Both are very important to be successful in fund management business.
To win a cricket match, you must have a team comprising a few good batsmen, all-rounders, bowlers, as well as strong team-work and strategy. You cannot expect to win matches consistently only with top batsman in the lineup. In the fund management business too, you will need good fund managers supported by a strong and deep research team. In addition, you will also need a robust investment process based on sound investment principles to ensure that strong investment results are repeatable.
Which are the most important skills to be a successful fund manager?
A successful fund manager would have a disciplined investment approach, where he/she would have a proven investment process in place. In addition, common sense is a must to be successful.
A fund manager should have an inquisitive mind, asking insightful questions to form his/her own independent views rather than following the crowd.
In addition to being able to form independent investment views, a successful fund manager also needs to be able to implement these views by investing with conviction, and have little regard to the benchmark.
As a fund manager, how do deal with the information overload?
In this day and age, technology is a double-edged sword; giving us convenience as well as information overload.
At Mirae Asset, we constantly stress the importance of insight over information with our investment professionals. Rather than having them report company quarterly numbers, which is accessible at our fingertips, our investment process allows them to focus more on things that could impact long-term business fundamentals.
How big is the mutual fund industry in HK? What is the perception of investors about mutual fund in HK?
In Hong Kong, people generally invest in stocks directly. You have the environment where everyone talks about stocks or has a stock tip. In fact, you will find celebrities talk about stocks in public.
However, the market is still predominantly driven by institutional investors.
In Hong Kong, we have a mandatory provident fund scheme, similar to 401K in US, which is an important part of the funds market. In addition, those investors who want international exposure or exposure to specific themes such as consumption may also invest through mutual funds.
Simply put, investors generally invest directly for domestic exposure, and indirectly through mutual funds for thematic or international exposure.
Can you explain why Mirae Asset is bullish on consumption theme?
We believe consumption, particularly in Asia, is the most important investment theme.
The Asia consumption story is mainly driven by three secular drivers. Firstly, demographics. Asia has one of the world’s best demographics with a large and young population, especially in countries such as India. This drives consumption volume. Secondly, the rising middle class. Rising disposable income means that consumers will not only buy what they need, but also increasingly what they want. This drives consumption value. Finally, penetration. Despite Asia already being such a big market in many areas, penetration remains very low, such as branded FMCG in India mentioned earlier. This drives consumption penetration growth.
In addition, “what” and “how” people consume is changing given disruptive technologies and rising affluence. As a result, consumers have moved beyond the traditional consumer sectors – we, as equity investors, need to move with them. Some of these non-traditional consumer areas we find attractive include internet / e-commerce, insurance and healthcare.
As a result, we believe Asia consumption growth is not only a multi-year theme; it is a multi-decade story. In addition, unlike a sector such as energy which is cyclical in nature, Asia’s consumption growth is supported by long-term structural drivers, which is why we believe investors are better off to stay invested over the long-term, rather than try to market time the cycle.
